Dimon was game and soon the chief executive officer of JPMorgan Chase was reaching out to the heads of the next three largest US lenders: Bank of America, Citigroup and Wells Fargo.
All month, the nation’s banking giants have been raking in deposits from nervous customers at smaller firms and now those behemoths would be taking some of their own money and handing it to a San Francisco bank in distress, trying to stanch a widening crisis.
Over two days of frantic phone calls, meetings and some arm-twisting, the CEOs of 11 banks agreed to chip in a total of $30 billion for First Republic, promising to park the money there at least 120 days.
The hope is that’s enough to save First Republic, known for its outsize business catering to wealthy tech executives. Or perhaps at the least, the cash will give the firm enough time to find another solution, such as a sale.
Such is the new-new-new line in the sand as the authorities in the US and Europe try to quell the Panic of 2023.
Already the rescue spearheaded by Dimon is sparking comparisons to the Panic of 1907, when J. Pierpont Morgan who built up the company Dimon now leads corralled Wall Street financiers into his private library and browbeat them into propping up the Trust Company of America, seeking to stop a string of bank runs that threatened to upend the industry.One reason strong banks stepped forward then was that US authorities had little ability to do so, which led to the creation of the Federal Reserve. This time regulators were already scrutinizing First Republic, raising the prospect of emergency government intervention and political blowback for years to come.
“If this works, it is a brilliant two-fer,'” said Todd Baker, a senior fellow at Columbia University’s Richard Paul Richman Center for Business, Law, and Public Policy. Big banks already were coming under fire for soaking up deposits from smaller lenders. Now they can show they’re part of the solution, while the Biden administration worries about one less bank, he said.
Regulators took their own shot at assuaging US banking customers last weekend, promising to fully pay out uninsured deposits after the failure of two US lenders SVB Financial Group and Signature Bank. The Fed also made a pair of facilities available to help other banks keep up with any demands for withdrawals.
But no guarantee
There already are signs that the strains in the financial system have yet to abate.
Early Thursday in Zurich, the Swiss National Bank offered Credit Suisse a $54 billion liquidity lifeline to keep the firm in business as it tries to overhaul operations.
Then later on Thursday, the Fed published data showing how heavily banks are drawing on its assistance.
They borrowed a combined $164.8 billion from two backstop facilities in the most recent week ended March 15. That includes a record $152.85 billion from the discount window, the traditional liquidity backstop for banks. The prior all-time high was $111 billion reached during the 2008 financial crisis.
In a statement after the official close of US exchanges, First Republic said its borrowings from the Fed varied from $20 billion to $109 billion from March 10 to March 15. The bank’s shares, which rose 10% during regular trading on Thursday, sank 17% after hours.
Given the tumult of the past week, most big US banks were eager to show their interest in pitching in, according to people who described the behind-the-scenes talks, who asked not to be named because the deliberations were confidential.
Treasury Secretary Yellen discussed the idea early on with senior officials including Fed Chair Jerome Powell and FDIC Chairman Martin Gruenberg.
The flurry of phone calls among bankers kept widening on Wednesday as more firms agreed to join the group. Still, some CEOs required cajoling, questioning the necessity of the rescue or whether it’s enough to work. Yellen spoke to some directly, also keeping White House Chief of Staff Jeff Zients and National Economic Council Director Lael Brainard in the loop.
By Thursday, much of the group was taking shape. It’s possible that at least some laggards were invited late, or just needed more time to get internal approvals. Goldman Sachs Group was among the last few.